Activision Blizzard Inc.'s (Nasdaq: ATVI) publishing division recently announced that the Skylanders franchise has garnered $1 billion in retail sales. The company came up with the fact based on the data available from market research firm The NPD group, Gfk Chart-track and the company's internal estimates.

Activision crossed the billion-dollar mark in just 15 months and has become the first kids IP to achieve such a milestone in such a short span. Moreover, the company sold 100 million toys as of Jan 2013.

We believe that the popularity of the Skylanders franchise lies in the novelty of the concept of bringing toys to life. Moreover, Activision's timely initiative of rolling out a mobile version of Skylanders Cloud Patrol for Apple's (Nasdaq: AAPL) iTunes App store and Amazon's (Nasdaq: AMZN) Kindle Fire also enhanced its popularity, in our view. Additionally, the company has launched the franchise's latest installment, Skylanders SWAP Force.

The success of Skylanders comes at an opportune moment for Activision. Of late, the company has tasted success with its blockbuster first person shooter (FPS) game Call of Duty: Black Ops 2, which topped the NPD's top 2012 games list.

Buoyed by the strong performance of Call of Duty and Skylanders franchise, Activision reported robust top-line growth in the last reported quarter. The company also intends to release expansion packs of these franchises' games to build on the popularity going forward.

However, the company remains cautious regarding fiscal 2013 due to the volatile macro economic environment coupled with uncertainly related to the console transition and tough year-over-year comparisons. Moreover, the company also provided a tepid outlook.

We also believe that the continued softness in the video game industry, limited presence in the mobile gaming segment, higher adoption of free-to-play games and significant competition from Electronic Arts (Nasdaq: EA) and Take-Two Interactive Software (Nasdaq: TTWO) are the major headwinds for Activision going forward. Moreover, continued investments in new products are expected to hurt margins in the near term.

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